Global Poverty and Poverty Reduction Poverty and Poverty Reduction Strategies ... this approach is increasingly out of step with social ... esp., small and medium ...

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  • Global Poverty and Poverty Reduction Strategies

    Martin Ravallion Georgetown University

    1

    Presentation at UN Expert Group Meeting on Poverty, June 1, 2016

  • Two questions

    How is the world doing against poverty?

    Is maintaining the policy status quo sufficient?

    2

  • The focus on extreme absolute poverty

    3

    0

    10

    20

    30

    40

    50

    0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 5.0

    Log private consumption per capita ($PPP per day)

    Nat

    iona

    l pov

    erty

    line

    ($P

    PP

    per

    day

    per

    per

    son)

    Luxembourg

    USA

    0

    2

    4

    6

    8

    10

    0.0 0.4 0.8 1.2 1.6 2.0 2.4 2.8 3.2

    Log private consumption per capita ($PPP per day)

    Nat

    iona

    l pov

    e rty

    lin e

    ( $P

    PP

    per

    day

    per

    pe r

    son )

    $1.25

    Malawi, Mali, Ethiopia, Sierra Leone, Niger, Uganda, Gambia, Rwanda, Guinea-Bissau, Tanzania, Tajikistan, Mozambique, Chad, Nepal, Ghana

    Poverty line fixed in real value over time and space. Anchored to national lines found in the poorest countries:

    $1.90 (2011)

  • Poverty monitoring must be socially relevant

    Absolute consumption poverty reduction should remain the highest priority.

    However, this approach is increasingly out of step with social thought and the aims of social policy in developing countries.

    Two main inadequacies: incorporating social effects on welfare and monitoring whether the poorest are left behind.

    4

    Ravallion, Martin, 2016, Toward Better Global Poverty Measures, Journal of Economic Inequality, Vol. 14, pp. 227-248.

  • Social effects on welfare

  • Poverty is absolute in the space of welfare

    Poverty measures that use a constant real line do not take account of the concerns people face about relative deprivation, shame and social exclusion. These are specific to place and time.

    The overriding principle: poverty is absolute in the space of welfare: an absolute approach in the space of capabilities translates into a relative approach in the space of commodities (Amartya Sen, 1983)

    6

  • Upper and lower bounds to the true welfare-consistent measure

    Absolute poverty measures can be interpreted as the lower bound to the true welfare-consistent measure. The lower bound assumes that the economic gradient in poverty lines

    across countries only reflects differing social norms.

    A weakly relative measure of poverty provides its upper bound, allowing for social effects on welfare. The upper bound assumes that the gradient in national lines stems

    solely from social effects on welfareextra spending needed to attain the same level of welfare in richer countries.

    (Strongly relative measures (e.g., 50% mean) are implausible.) The true welfare-consistent absolute line lies somewhere

    between the two bounds.

    7

  • 0

    10

    20

    30

    40

    50

    60

    70

    1980 1984 1988 1992 1996 2000 2004 2008 2012

    Headcount index (% below poverty line)

    Upper bound:absolute + relative

    Lower bound:absolute poverty

    Poverty measures for the developing world

    8

  • 0

    500

    1000

    1500

    2000

    2500

    3000

    1981 1984 1987 1990 1993 1996 1999 2002 2005 2008

    Number of poor in millions

    Numbers of poor

    9

    Absolutely poor

    Relatively poor but not absolutely poor

    Two-thirds of the increase in the number of people who are relatively poor but not absolutely poor is accountable to the decrease in the number of absolutely poor.

    Upper bound

    Lower bound

  • We are not monitoring progress in assuring that no one is left behind

    10

  • A widely held view: the poorest are left behind

    The poorest of the world are being left behind. We need to reach out and lift them into our lifeboat. U.N. Secretary-General Ban Ki-moon, 2011

    Poverty is not yet defeated. Far too many are being left behind. Guy Ryder, ILO

    And in 2015 the Vaticans representative to the U.N. reaffirmed that the poorest of the world are being left behind.

    Yet economists appear to tell a very different story. Adages such as a rising tide lifts all boats or claims that growth is good for the poor or that there has been a breakthrough from the bottom

    11

  • The counting approach misses what is happening at the floor

    12

  • Same reduction in the poverty count but different implications for the poorest

    13

    Poorest left behind Same reduction in the incidence of poverty but without leaving the poorest behind

    Measure of welfare

    Cumulative % of population

    Measure of welfare

    Cumulative % of population

    Poverty line

    Poverty line Floor stays put

    Rising floor

    Cumulative % of population

    Measure of

    welfare

    Poverty

    line

    Cumulative % of population

    Measure of

    welfare

    Poverty

    line

    Poorest left behind

    Same reduction in the incidence of poverty but without leaving the poorest behind

    Poorest left behind

    Same reduction in the incidence

    of poverty

    but withou

    t

    leaving

    the poorest behind

    Measure of

    welfare

    Cumulative % of

    population

    Measure of

    welfare

    Cumulative % of

    population

    Poverty

    line

    Poverty

    line

    Poorest left behind Same reduction in the incidence

    of poverty but without leaving

    the poorest behind

    Measure of

    welfare

    Cumulative % of

    population

    Measure of

    welfare

    Cumulative % of

    population

    Poverty

    line

    Poverty

    line

  • We can also measure our success at leaving no-one behind

    The floor is certainly not all we care about, but we cannot continue to ignore it in monitoring poverty.

    Our success in assuring that no-one is left behind can be readily monitored from existing data sources under certain assumptions.

    That also assures consistency between how we monitor poverty and how we think about social protection policies.

    14

    Ravallion, Martin, 2016, Are the Worlds Poorest Being Left Behind?, Journal of Economic Growth, in press,

  • Focusing on the floor gives a very different picture to the counting

    approach

    15

  • Much less progress in raising the consumption floor

    16

    0

    1

    2

    3

    4

    5

    6

    1980 1984 1988 1992 1996 2000 2004 2008 2012

    Overall mean fordeveloping world

    Consumption floor: expected level of lowest consumption

    Mean consumption ($ per person per day)

    $0.67 on average

    No sign that the new Millennium raised the floor

  • Yes, the poorest have been left behind! Fewer people living near the floor, but little change in the floor

    17

    0

    2

    4

    6

    8

    10

    12

    0 10 20 30 40 50 60 70 80 90 100

    Percentile

    Abso

    lute

    gai

    n 19

    81-2

    011

    ($ p

    er p

    erso

    n pe

    r day

    )

    -40

    -20

    0

    20

    40

    60

    80

    100

    0 2 4 6 8 10 12 14 16 18 20

    Per

    cent

    of t

    he p

    opul

    atio

    n

    Consumption or income per person ($ per day, 2005 prices)

    1981

    2011

    Difference (2011-1981)

  • Growing economies have seen rising absolute inequality

    We have seen that the mean has been rising markedly relative to the floor.

    This generalizes to the mean absolute gap => the absolute Gini index.

    18

  • 19

    -15

    -10

    -5

    0

    5

    10

    15

    -0.2 -0.1 0.0 0.1 0.2

    Annualized change in log meanAn

    nual

    ized

    chan

    ge in

    abs

    olut

    e G

    ini in

    dex

    -10

    -5

    0

    5

    10

    -0.2 -0.1 0.0 0.1 0.2

    Annualized change in log mean

    Annu

    alize

    d ch

    ange

    in re

    lativ

    e G

    ini in

    dex

    Relative inequality (Gini)

    Same data, but very different pictures

    Differing concepts of inequality underlie development policy debates, not differences in data.

    Absolute inequality (Gini)

    Ravallion, Martin, 2016, The Economics of Poverty. History, Measurement, and Policy, New York: Oxford University Press.

  • Implications for poverty reduction strategies

    20

  • Economic growth will be crucial, especially in poor places

    Few countries have seen sustained progress in reducing inequality. Growth has been distribution neutral on average.

    Thus, growth has been the main proximate source of progress against absolute poverty.

    However, high and (often) rising inequality threatens to undermine prospects for future growth, and dampens the impact on poverty.

    Countries starting out with a high poverty rate have a harder time growing their economy, and a harder time assuring that their growth is pro-poor.

    21

  • Optimistic vs. pessimistic paths

    Maintaining the new growth trajectories since 2000 without a rise in overall inequality will lift about one billion people out of extreme absolute poverty over the next 15 years or so.

    22

    0

    10

    20

    30

    40

    50

    60

    1980 1990 2000 2010 2020 2030

    Poverty rate: Percentage living below $1.25 a day

    Optimistictrajectory

    Pessimistictrajectory

    3% by 2030 Ravallion, Martin, 2013, How Long will it Take to Lift One Billion People out of Poverty? World Bank Research Observer, 28(2): 139-158.

  • How to reach the optimistic path?

    The optimistic path requires successful action in fostering the conditions for continued, reasonably rapid, pro-poor growth. Poverty-reducing economic reforms. Making markets work

    better for poor people. Assuring that poor people are able to participate fully in

    that growth, which will in turn require that they have access to schooling, health care, labor-market opportunities and financial resources when needed.

    And it will need a measure of good luck; avoiding major crises (financial and agro-climatic).

    23

  • 24

    How to achieve more pro-poor growth?

    Literature and policy discussions point to the need to: Develop human and physical assets of poor people Make markets work better for them (credit, labor, land) Remove biases against the poor in public spending,

    taxation, trade and regulation Promote agriculture and rural development; invest in local

    public goods in poor areas Remove restrictions on migration Foster labor absorption from urban economies, esp., small

    and medium sized towns

  • Even the optimistic path will leave over one

    billion people living in relative poverty

    25

    Growth is less effective against relative poverty, judged by predicted national lines for each country/date:

    Average elasticity of absolute poverty reduction to growth in the mean = -2.

    Elasticity of weakly relative poverty = -0.4.

    -40

    -30

    -20

    -10

    0

    10

    20

    -4 -2 0 2 4 6 8 10

    Absolute povertyRelative poverty

    Growth rate in survey mean (% per annum)

    Proportionate change in poverty measure (% per annum)

  • 26

    A new role for direct interventions?

  • Cruel irony: Poorer countries are less effective in reaching their poor

    0

    20

    40

    60

    80

    100

    0 2000 4000 6000 8000 10000 12000 14000 16000 18000 20000 22000

    GDP per capita at PPP for year of survey

    Safety net coverage for poorest quintile (%)Safety net coverage for whole population (%)

    Poorest quintile

    Population

  • Better direct interventions 1: Focus on poverty reduction not finer targeting per se Excessive emphasis on reducing inclusion errors. The most finely targeted policy (lowest inclusion errors) need

    not have the most impact on poverty o Information problems; measurement errors o Proxy means tests are often poor means tests, esp., poorest o Hidden costs of participation o Adverse incentives: high marginal tax rates => poverty traps o Political economy; concerns about undermining social

    support/political consensus

    28

  • Better direct interventions 2: Improve the protection-promotion trade-off in practice

    There can be a trade off, though often exaggerated. Transfers have a role in allowing markets to work better from

    the perspective of poor people. Social investment approaches (CCT and workfare) show

    promise, though assessments must consider all the costs and benefits and avoid paternalism.

    Greater flexibility is needed in responding to shocks. Participant capture is a common problem. Also local moral hazard.

    Dont be too ambitious: administrative capacity is a key constraint in practice.

    Monitor and evaluate, and adapt accordingly.

  • 30

    Long-term perspective: Lessons from todays rich world

  • Escape from poverty in the 19th century (Todays rich world was once very poor!)

    0

    20

    40

    60

    80

    100

    1820 1840 1860 1880 1900 1920 1940 1960 1980 2000

    USUK and IrelandFranceGermany

    World (including today'sdeveloping countries)

    JapanItaly

    Australia-Canada-NZ

    Poverty rate (%)

  • A lesson from todays rich world?

    Todays developing world is making faster progress in reducing the poverty rate (the counting approach) than did todays rich world.

    But todays rich world did better at raising the floor. The annualized rate of growth in the floor over this

    period in todays rich world was 0.7%, about double the rate we have seen in the developing world over the last 30 years.

    Greater success in comprehensive social policy may well be the main reason.

    32

  • Two questions

    How is the world doing against poverty? Poverty in terms of command over commodities.

    You have heard the headlines; but you now know that important things are missing.

    Is maintaining the policy status quo sufficient ? The emphasis on economic growth in poor areas is justified,

    but it needs to be complemented by greater policy emphasis on reaching the poorest and redressing extreme inequalities.

    33

  • 34

    New approaches to measuring global poverty: Toward

    Better Global Poverty Measures, Journal of Economic Inequality, Vol. 14, pp. 227-248.

    Optimistic and pessimistic paths to lifting 1 billion people out of poverty: How Long will it Take to Lift One Billion People out of Poverty? World Bank Research Observer, Vol. 28 (2), 2013, pp. 139-158

    Policies for fighting poverty: The Economics of Poverty. History, Measurement, and Policy, New York: Oxford University Press.

    Further reading

  • 35

    Thank you for your attention!

    Global Poverty and Poverty Reduction StrategiesTwo questionsThe focus on extreme absolute povertyPoverty monitoring must be socially relevantSlide Number 5Poverty is absolute in the space of welfareUpper and lower bounds to the true welfare-consistent measurePoverty measures for the developing worldNumbers of poor We are not monitoring progress in assuring that no one is left behindA widely held view: the poorest are left behindThe counting approach misses what is happening at the floorSame reduction in the poverty count but different implications for the poorestWe can also measure our success at leaving no-one behindFocusing on the floor gives a very different picture to the counting approachMuch less progress in raising the consumption floorYes, the poorest have been left behind!Fewer people living near the floor, but little change in the floorGrowing economies have seen rising absolute inequalitySlide Number 19Implications for poverty reduction strategiesEconomic growth will be crucial, especially in poor placesOptimistic vs. pessimistic pathsHow to reach the optimistic path?How to achieve more pro-poor growth? Even the optimistic path will leave over one billion people living in relative povertySlide Number 26Cruel irony: Poorer countries are less effective in reaching their poorBetter direct interventions 1: Focus on poverty reduction not finer targeting per seBetter direct interventions 2: Improve the protection-promotion trade-off in practiceSlide Number 30Escape from poverty in the 19th century(Todays rich world was once very poor!)A lesson from todays rich world?Two questionsFurther readingSlide Number 35

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